Doom and gloom still hover over the Sydney residential property market, but the Landsburys Research experts say we might actually be heading for growth.

Recent trends might make it seem highly unlikely.  Housing affordability in the June quarter was at another low, with the housing industry predicting it may not return until 2022.  The flourishing jobs market threatened more rises in interest rates before the end of the year.  The number of mortgagee sales is increasing, particularly in western Sydney, with more foreclosures mooted. And thousands of homeowners who have been trying to sell their homes for up to three or four years are still waiting for a buyer to walk through the door.

However, the predictions of growth are based on the fundamentals of supply and demand. Construction of new housing has been in freefall since2003, but the resources bonanza has been driving strong immigration.

Landsburys Research Manager Ariel Pollard says the severe housing shortage resulting from increasing immigration and the level of new housing starts could push up house prices 10 to 15 percent a year over the next two to three years.

This shortage is borne out in the vacancy rates for rental property, which are at their lowest levels for 30 years. Currently only 1.3 per cent of rental properties across the nation – and as low at 0.5 percent in Adelaide – are vacant while a figure of 3 per cent is considered market equilibrium.  Rents are rising as a result, causing concern among welfare agencies for the plight of poorer renters. 

Landsburys Research says the resources boom is impacting on all markets across Australia. The rate of overseas migration has increased to help meet the labour needs and it is this aspect which impacts directly on the housing markets. It is estimated that in 2006 there were about 142,000 dwellings constructed, while the view of annual demand is in the order of 160,000 to 170,000 new residences.

Property prices have already risen in all capital cities. In Sydney, only the premium areas are doing well, but elsewhere the recovery appears more general. Another sign of recovery is the improvement in auction clearance rates – now hovering around 70 percent nationally, a far cry from 30 per cent three years ago.

Sales activity has increased in Sydney, the adjustment process is almost totally over and there will now be only a handful of lower cost outer suburbs still adjusting.
With the resources boom looking as if it is not going to draw to a close for some time, higher demand and stock shortages mean that prices and rental yields are going to increase.  It’s time to seek out investment in the two major markets, Sydney and Melbourne, with a greater emphasis on Sydney where government inaction is going to bring about higher levels of demand.

Some forecasts indicated the future growth in median house prices will vary from city to city. An increase in residential property prices from 2008-09 will be driven by significant pent-up demand for new residences at the national level. So stay tuned.